FTC complaint accuses Tempur Sealy of being out to get ‘rivals’

HOUSTON – The Federal Trade Commission outlined its case against the Tempur Sealy International’s proposed $4 billion acquisition of Mattress Firm with a complaint that characterizes the manufacturer of being poised to take out it its “rivals” as basis to block the deal.

The 50-page complaint filed Tuesday night with the U.S. Court of Appeals for the Southern District of Texas here is heavily redacted. Despite that, the document lays out the FTC’s case that the proposed deal “would upend” the mattress industry giving Tempur Sealy “enormous sway over the fate of its rivals.”

The filing uses the word rivals two dozen times.

If allowed, the deal, announced May 9, 2023, could marry the world’s largest mattress manufacturer with the largest mattress retailer in the United States. The FTC, which had been reviewing the proposed deal since late 2022, ruled 5-0, in an unanimous vote, to move to block the deal this week.

Tempur Sealy, the FTC alleges, wants to “protect its dominance and suppress competition rank among the company’s chief reasons for pursuing” the proposed acquisition – codenamed “Project Lima” in presentations analyzing the possible acquisition.

Referencing presentations regarding acquiring Mattress Firm as early as 2022, the FTC complaint has more than 15 lines of redacted information regarding the benefits of such a merger. However, the FTC said the documents show a pattern. “Multiple high-ranking executives within Tempur Sealy have expressed a desire to eliminate and block rival mattress suppliers and brands from Mattress Firm post-acquisition,” the complaint says, citing Serta Simmons Bedding and Resident.

In the lawsuit against Tempur Sealy and Mattress Firm, the FTC references the retailer as the “single most important retail channel for mattress brands” with its more than 2,300 stores.

“Given Tempur Sealy’s history of using exclusionary deals to block rivals, this acquisition would further cement its dominance and deprive independent brands of the opportunity to engage in free and fair competition,” the complaint said. “Millions of Americans would be left paying the price. Because this proposed acquisition may substantially lessen competition or tend to create a monopoly, it should be enjoined.”

The complaint outlines Mattress Firm’s dominant position in the marketplace as “the most important distribution channel for premium mattresses.” The FTC lumps the premium mattresses as those sold between entry level and below luxury price points.

The FTC includes a reference to Tempur Sealy CEO Scott Thompson saying that Mattress Firm can determine which mattress brands are successful. The filing cites the example of Purple Innovation’s growth in 2017 when it made it onto Mattress Firm’s floor. It also references Tempur Sealy’s return to the retailer’s stores in 2019 following its absence for two years, and “by 2021 Tempur Sealy’s overall U.S. sales revenue had grown over 50%.”

Should the acquisition be allowed to proceed, the FTC said Tempur Sealy would have “strong financial incentive to do exactly what it has been planning to do: disfavor rival mattress suppliers to sell more of its own brands.”

The FTC said a combined company would earn more margin on Tempur Sealy products – Tempurpedic, Sealy and Stearns & Foster brands – than other brands to  “generate hundreds of millions of dollars in additional revenue, while damaging competition in the market and inflating costs for everyday Americans.”

In addition to outlining what could happen under such a deal, the FTC examined Tempur Sealy’s current and past moves against competitive mattress brands saying it “would not be the first time Tempur Sealy has sought to exclude rivals and undermine competition.”

The complaint alleges that the company has on a number of occasions tried to “oust existing brands” and block new brands from Mattress Firm. Redactions prevent the entire argument from being read on this matter, but The FTC goes on to say that Mattress Firm resisted the request in 2019 and in 2021. If Tempur Sealy owned Mattress Firm, the FTC said the company could “deploy its playbook unilaterally.”

If allowed to own Mattress Firm, the FTC said other mattress makers would be left with limited access to sell premium level mattresses pointing out that “other multi-vendor mattress retailers each sell only a fraction” of mattresses sold by Mattress Firm.

The FTC backed up its argument by citing Tempur Sealy’s history of signing “anticompetitive agreements that forbid” mattress retailers from carrying particular brands or “require Tempur Sealy to occupy a dominant portion of the sales floor.” The complaint includes a redacted example.

“There are no pertinent factors sufficient to offset the likelihood of competitive harm from the Proposed Acquisition,” the FTC argues. “Respondents will be unable to demonstrate that the Proposed Acquisition would induce any entry or expansion by premium mattress suppliers or multi-vendor mattress retailers, let alone that such entry or expansion would be timely, likely or sufficient in magnitude, character and scope to deter or counteract the anticompetitive effects of the Proposed Acquisition.”

Along with the lawsuit, the FTC filed requested a temporary restraining order and temporary injunction to halt the deal until the FTC concludes the administrative proceeding. Without a judge granting the requests, the parties could close the deal “after 11:59 p.m. Eastern Time on July 7.” That reference to the date – effectively Monday – makes it sound as if the deal was imminent had the commission not intervened with this action.

Tempur Sealy has scheduled a conference call for Monday, July 8, at 8 a.m. Eastern time to discuss its response to the complaint.

See also:

  • Tempur Sealy says FTC got decision on Mattress Firm acquisition wrong
  • Mattress Firm disappointed in FTC move to block Tempur Sealy deal

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